Members will know that I have not been a huge fan of this one...

Members will know that I have not been a huge fan of this one for a long time. I know that is UnAustralian and have been on ****** or elsewhere talking RMD. Now I do have a huge respect for what the CPAP machine does for your health. If you have a problem, and I am sure your partner will tell you, I would highly recommend getting tested and maybe getting a CPA machine. My issue is not the health benefits, but the company.

I have a number of issues with RMD.

Firstly, the cost of a CPAP has not increased in years. There is plenty of competition and they are always on some sort of sale.

Actually, when I checked this morning, they are really on sale. There is a new model available

So pricing power seems weak. Not really sure how the new model is going to be better. The AirSense 11. I found the new Airsense online for $1167.

No mask though.

The other issue is that these machines last years. There are not too many moving parts. Masks and straps need replacing, although the masks are pretty indestructible. And you can get plenty of peripherals on eBay for cheaper prices than the official RMD channels.

RMD has had a huge free kick in the last few years with rival Philips machines recalled for potential health risks. The foam used in the machines can break down. If that happened then it could cause health issues if inhaled. Sub optimal. This is a huge free kick. Yet RMD have really failed to capitalise on it. Gross margins have been under pressure.

The problem I see is that once you buy a machine you are done. There is no ongoing SaaS style income. There is a digital offering that monitors your sleep patterns and can be remotely accessed by a health professional, but to be honest the automatic machines do a great job and once you are hooked up, there is probably little reason to change anything. And the shops will set you up and support you pretty much for free.

The biggest issue is that many people buy a machine after a diagnosis and do not stick with it.

The whole mask thing is a serious passion killer, no one wants to sleep next to Darth Vader. The technology focuses on how quiet the machine can be but you struggle to get away from the masks. New masks are being introduced all the time, 2024 is the next batch but they do essentially the same thing. The machine is reliable and does what it is supposed to do.

The growth of the business relies on getting more people diagnosed and then buying a Resmed machine. There have been supply chain issues with the AirSense 11 devices and the constant need to get new customers is not a great business model. The company is trying hard top push into the AI algo enhanced personalised experience but at the end of the day, it is a simple thing.

The app that you have that connects with the machine gives you a score every night and there are videos etc on the app of how to clean your machine, your masks and changing filters. It is not that high tech really and not really that essential to check the app to be honest.

The results were disappointing, even more so given the Philips issue. Gross margins at 55.8% in 4Q23 which is down 5% YoY. US growth going well, but the Rest of the World not so. Devices down 8.8% and masks down 8.3%.

RMD has made a number of acquisition sto try and bolt on technology and revenue. The latest one MEDIFOX DAN for US$997m is supposed to add SaaS revenue. MEDIFOX DAN. specializes in the development of innovative software solutions and services for professional and non-professional care, therapeutic practices and child, family, and youth welfare facilities. It contributed $27.3m in total revenue.

Brokers remain positive on the stock despite the disappointing results. Earnings growth was tepid at 7%. No dividend yield to speak of.

There is no questioning the benefits of having a CPAP machine. But with 20-40% of users giving up, it requires constantly replacing customers.

Love the health benefits, just not a great fan of RMD. It has its moments and the sell-off last week, could provide an opportunity for patient investors. May have been a little overdone in the short term. Not rushing though.Down another 6% this morning. Hell hath no fury like an analyst wronged. Three day rule maybe applies. If you are a growth stock then you do need to have that growth!

***Broker research just dropping now.

• Morgans has a 12-month PT of $36.95 - Well positioned and believe overall fundamentals remain sound, with strong underlying sales momentum and leverage improving as margin headwinds abate.
• Ord Minnett has a Fair Value (Morningstar Reserach) of $39.00- revenue forecasts unchanged but EBIT forecasts reduced by 7%. A more protracted recovery now expected and gross margins still under some pressure. Steeper increase in selling, general and admin expenses hurting.